If you have been following these universal life excerpts from the Full Disclosure policy comparison software series for any amount of time, you may have noticed how different certain policies have become in relation to others, particularly regarding illustrated values. It’s not because one policy is necessarily “better” than another. Universal life is an inherently flexibly policy design chassis that insurers can customize–and have increasingly been doing so–to meet various design objectives. Products can be modified via options (such as adding a long term guarantee) or riders, but design objectives are more likely to be inherent in the basic makeup of the contract.
When looking at a relatively small amount of information, such as these excerpts present, a certain level of confusion can arise regarding what is actually being compared. To make things a bit clearer, the editors of Full Disclosure have added a code appearing next to each policy name in the following charts. We have always included a section titled Policy Design Objectives, but these codes are designed to place what we feel the product is designed to do right up front. This is especially important, as the number of different types of policies is expanding. The codes are:
o GMDB–Guaranteed Minimum Premium/Death Benefit. These are policies that generate little cash value and are designed for long-term (lifetime) death benefits with a guaranteed minimum premium outlay.
o DB–Maximum Death Benefits. These are policies that generally cost little to carry on a current basis and whose primary purpose is to provide maximum death benefits for a given premium.
o AV–Maximum Accumulation Values. These policies are designed for maximum cash value accumulation with more of the premium going towards building values as opposed to growing death benefits. They usually are also designed for maximum retirement or other income and may feature “zero-cost” policy loans to do so.
o F/G–Flexible/General Purpose. A policy with a Flexible/General identification may be constructed to achieve different objectives by selecting different options. For example, it could be either made to be a Guaranteed Minimum Premium/Death Benefit policy, or an Accumulation Policy depending on options chosen or funding level. An F/G designation could also mean that it is what is sometimes called a “balanced” or “all around” policy. That is, it generates cash values and death benefits in somewhat equal measure.
o S–Specialty. These are policies that do not fit in the above categories. For example, there is one policy so listed in this excerpt from Full Disclosure that is not medically underwritten.
These identifications are designed to help you fairly compare policies that share common designs.